A PAPER PRESENTED ON THE 10TH ANNIVERSARY OF OLAJIDE AND ASSOCIATES TITLE COMPANY INCOME TAX IN NIGERIA. PRESENTED BY FOLARIN O.I
The Companies Income Tax Act is the law that regulates the taxation of all limited liability companies doing business in Nigeria (private and public limited companies alike), other than those engaged in Petroleum Operations.
The Federal Board of Inland Revenue is the sole authority for the administration of this tax.
Before you commence your business…
When you register or incorporate a company, you are expected to register with the nearest tax office to you, in order to open a file for all of your future tax transactions.
You are expected to furnish the tax officer with all information concerning the business in prescribed format. When you visit the tax office, you will be asked to submit copies of your registration documents (from CAC), and you will be given some forms, including VAT registration form, to fill in and return to the tax office that has jurisdiction over the registered address of your company.
There are advantages for registering in this manner:
a) You would be guided (from Day 1) on how to meet your company’s tax obligations without incurring penalties and sanctions, which are usually additional costs to the business for those that fail to register.
b) It also enables your company to get its first Tax Clearance Certificate without paying any tax, and to renew it in a painless manner thereafter.
c) Finally, it enables you to access all tax incentives available for companies under your category, some of which can be found here.
The law requires every company (including a company granted exemption from incorporation) to, at least once in every year without notice or demand, make and deliver to the Board a return in the forms of:
(i) The audited accounts, tax and capital allowances computations and a true and correct statement in writing containing the amounts of its profits from each and every source;
(ii) A declaration which shall be signed by a director or secretary of the company that the returns contain a true and correct statement of the amount of its profits computed in respect of all sources and that the particulars in such returns are true and complete.
• For newly incorporated companies, the submission shall be within eighteen months from the date of its incorporation or not later than six months after the end of its first accounting period, whichever is earlier.
• For Existing Companies – companies that have been in business for more than 18 months – the submission shall be not more than six months after the close of the company's accounting year.
Filing early returns is profitable.
Companies Income Tax Rates
- Rate of Tax (on Total profit) is 30%, with effect from 1st January 1996.
- Lower Rate of Tax: The law, however, prescribes lower rate of tax for certain companies. Companies enjoying lower rates are classified as either “small companies” or those in “preferred sectors.”
Small companies are those companies having an annual turnover of N1, 000,000.00 or less. Companies in the preferred sector are those in manufacturing, agricultural production, and mining of solid minerals or wholly in export trade.
The Lower rate of tax of 20% is payable by these companies in the preferred sector of the Nigerian economy for the first 5 years of commencement of business.
- Minimum Tax is paid by a company which has (1) no total profit, (2) whose total profits results in no tax payable or (3) tax payable is less than minimum tax.
If the turnover of the company is N500,000 or below and the company has been in business for at least 4 calendar years, the minimum tax will be the highest of the following:
• N500,000 OR Below
A. 5% of gross profits; or
B. 0.5% of Net Assets: or
C. 0.25% of paid up capital; or
D. 25% of Company's annual turnover
• Above N500,000
If the turnover is higher than N500,000 the minimum tax will be whatever is payable on a turnover of N 500,000 and any excess over N500,000 will be taxed in addition at 50 per cent of the rate first used for the first N 500,000.
- Exception to Minimum Tax
• The minimum tax is not applicable to a company during the first four years of its commencement of business;
• It is also not applicable to agricultural trade or business as defined in Section 9 (8) of Companies Income Tax Act: and
• It is not applicable to any company with at least 25 per cent imported equity capital.
Folarin Olabiyi (OND)
Olajide and Associates Nig.